After gender, UK may force firms to report on ethnic and disability pay gaps

However, transparency may pose unexpected risks to the lowest paid

The legislation has already led to public outcry over certain culprits – including the BBC – and drawn focus to the UK’s vast bonus gap. While the average male UK chief executive receives a bonus of $120,000, a woman CEO gets just $20,000.

At a conference on gender pay in London last week, the UK Minister for Women, Anne Milton, suggested this may be just the beginning of a new era of enforced transparency that could extend to race, disability, and beyond.

“The obvious thing is that next is ethnicity and also disability. [British businessman] Sir John Parker is leading an expansive piece of work on that,” said Milton.

“The reporting will be done by April next year, and we then need to take stock and see if we extend this into ethnicity pay gap reporting to make sure that we don’t need to make any changes and maybe do it in a different way,” she said. “It’s about equality: it’s about saying whoever you are, whatever your background, from wherever you come, you should have an equal opportunity.”

Disabled women in the UK face a pay gap of 22% compared to non-disabled women, while disabled men earn on average 11% less than non-disabled men. To make matters worse, disabled people pay on average more than $700 per month in extra costs related to their disability.

Recent studies have also emphasised significant ethnic income disparities in the UK. Incomes of Bangladeshi and Pakistani households are almost $12,000 less a year than white households, and black African households $7,500 less.

Different organisations struggle with different forms of inequality. “In the BBC, the biggest problem is the ethnic pay gap. Only 10 of the 96 highest earning employees are BME [black and minority ethnic], and not one BME employee was in the top 20 highest earning workers,” the writer, broadcaster and barrister Afua Hirsch told the conference.

“The obvious thing is that next is ethnicity and also disability”

While public recognition is crucial to gaining momentum to tackle these pervasive underlying inequalities, gender and other minority gap reporting also poses risks for the very people it is trying to protect.

One risk is the possibility that the data may reinforce gender segregation and stereotypes by deterring women from entering sectors in which they are disadvantaged. “There’s concern that this publicity might backfire because women are put off the sectors they know they’ll be paid less in,” said Hirsch.

The Financial Times has already published data highlighting financial services as having the highest UK gender pay gap by sector, currently estimated at 31%. The newspaper also singled out the electricity and gas and construction industries as having the second and third highest gaps at 26% and 23% respectively.

Another risk will be around employers’ responses to public naming and shaming. While “equal pay” measures whether work of the same value receives the same rewards, the “pay gap” measures disparities in women’s and men’s average earnings across an organisation. This means that if a company hires a lot of women in junior roles, its pay gap figure will be very high. The same logic applies to other minority gap reporting.

“Outsourcing roles done by women to improve audits is very much a concern”

As more data gets published, naming and shaming of the worst figures will increase – and force a response. “League tables are likely,” said Sam Smethers, Chief Executive of the Fawcett Society. National rankings pose well-known risks. This year, the chief schools’ inspector in the UK launched an investigation into the “gaming” of league tables, with research showing that some schools exclude low-performing students in the run-up to exams.

National employer rankings could pose parallel risks for the lowest paid minority staff. Rather than exclusion, the risk in this context is outsourcing.

“Outsourcing roles done by women to improve audits is very much a concern,” said Professor Carol Woodhams, a specialist on the gender pay gap at the University of Exeter Business School. “We must be very wary of organisations that take shortcuts to reduce their gender pay gap,” she said. “If they’re named, shamed, and exposed, they will start indirect strategies.”

“Outsourcing your catering and your security and cleaning will remove a great deal of your low-paid women and will reduce your gender pay gap. That will look good, but it’s not good HR.”

Outsourcing means fewer benefits, downward pressure on compensation, and less job security for low-paid staff. In one US study, outsourcing was shown to lead to a wage penalty of 4% to 7% for janitors and from 8% to 24% for guards.

Furthermore, well-publicised pay gap rankings may discourage employers from taking on female staff at the lower end. “If you’re in the IT sector, taking on a whole swathe of women apprentices will be a good HR initiative, but it will increase your gender pay gap,” said Woodhams.

These risks have, so far, not entered the mainstream public discussion around pay gap reporting, but they bear consideration. A new dialogue is the first step to finding strategies to mitigate them.

There is clearly much to be gained from exposing gender and other minority pay gaps, both in terms of revealing the scale of the problem and generating discussion that may lead to action. “The first step to any recovery process is recognising that you have a problem,” said Hirsch.

If companies report on a limited number of narrow data points out of context, this new era of transparency could pose unrecognised but significant risks for those already facing the gravest inequity. Numbers alone don’t tell the whole story.

You can read three articles a month without signing up. For unlimited, free access to all our stories, sign up to our global network for public servants. Read about how to fix things, and meet the experts already doing it.